Examination of witnesses (Questions 140
THURSDAY 18 JUNE 1998
and DR DELORES
140. So you are saying then that it is not
a fact but an assumption?
(Dr Martin) That would be the nature of a limited
bilateral agreement. It will always have some capacity constraints
involved. Then one has to decide how that capacity is divided
up and the way in which carriers should be operating it.
141. Can you identify any other area in
which you have an interest, where the Commission actually goes
back with a proposed contract to the Council of Ministers and
the Council of Ministers says yea or nay? Do you really think
this is a realistic option?
(Dr Martin) No, I cannot identify any other areas
where this is done. But if one is talking about Community negotiations,
it is conceivable that the Commission would simply be given a
mandate of seeking total liberalisation. Then it would either
come back to the Council of Ministers saying, "We have achieved
that mandate," or "We have failed to achieve that mandate."
But it seems much more likely to me that they will, in seeking
to negotiate this total liberal agreement, make some gains or
fail to make progress in some places and will come back to the
Council of Ministers and say, "This is how much of your mandate
we have succeeded in negotiating. What would you like to do?"
The Council of Ministers could, of course, simply say, "In
that case you have failed and the negotiations are called off
totally," or they could say, "Yes, we will settle for
as much as you have managed to negotiate for us." Then we
get into the second round of internal negotiations.
142. My point is that this second round
could lead into market forces. This is the deal but it is up to
the airlines in Europe to take advantage of that opportunity.
(Dr Martin) It would be welcome if they could
but I cannot quite understand if, for example, the Commission
comes back and says, "We can operate ten flights a week into
Buenos Aires." We cannot just leave it to the airlines. Say,
there is a limit of ten.
143. Why not? How would they divide it between
themselves? Market forces. How would they decide any contract?
(Dr Martin) British Airways would say, "We
would like five." Lufthansa would like three and Air France
six. How would they then choose?
144. By Buenos Aires agreeing which would
be preferable to them.
(Dr Martin) Are you suggesting they would agree
145. If it is 20 flights they want and there
are ten slots, Buenes Aires would decide what was best for Argentina,
would they not, whether they want them to come from Berlin or
(Dr Martin) In those circumstances you are not
leaving it to market forces, you are leaving it to the third country
to decide which of our airlines should fly to their country.
146. That is market forces.
(Dr Martin) It could be.
147. You could conclude from the last exchange
between Lord Thomas and yourselves that, in fact, once the Commission
has made an agreement with a stateand let us leave the
United States out of itthe decision about which airlines
go where is made purely on who can get what slots where and therefore
it comes down to the allocation of slots principle, ie,
is it going to be done on an auction basis of first come first
served or national carriers or what. I can see market forces will
fail because there are not the slots and it will all depend on
who allocates the slots. Would you see the slot allocation as
part of the agreement between the European Commission and a third
(Mr Hamer) Let us take the slot allocation issue
in isolation perhaps for a moment. One assumes market forces work
when you have, first of all, a liberal regime and, secondly, you
have an abundance of whatever it is you are trading and in this
case we are talking about air transport. The availability, or
lack of slots and the congestion that a number of the major airports
within Europe and throughout the world have is one of the big
obstacles as far as the full benefit to consumers of the liberalisation
of air transport is concerned. Indeed, it is the point which was
discussed earlier with Lord Haslam of why do we have these rules
applying to air transport and not other industries. A lot of it
comes down to this issue of slots. The point as whether or not
slots should be or will be part of any negotiation I think goes
back some way to the point that we made earlier and that was that
the longer this takes the less likely it is to be bringing any
real major benefit, such as those we have suggested to your Sub-Committee,
my Lord Chairman, may accrue to consumers simply because the issue
of slots in itself may already have taken a certain turn. We all
recognise the issue of grandfather rights as far as slots are
concerned and the major issue that that could pose, but, more
importantly, if slots become tradeable in any sense of the word
officially then ownership rights will accrue as well. It will
therefore be very difficult in the future to be able to bring
in any form of regulation so as to include slots in such negotiations
without bringing the owner of those slots on board. If one of
your planks may be to say to the owner, "You have to give
them up to another airline", then we can see problems on
the horizon with that.
148. Does that not come back to the historic
national identity of airlines and hence the merger of airlines
throughout Europe would ease the slots system currently?
(Mr Hamer) In one sense it would certainly do
that. However, having said that, of course, if one looks at what
consumers want from airlines, frequency is very, very high on
the agenda, point-to-point travel, hub-to- point travel and so
on. Of course, if mergers simply meant that frequencies were reduced
thereby following the argument that more slots would become available
it is questionable whether or not there would be true consumer
149. Mr Hamer, we have encroached considerably
on your time and we are very grateful to you and Dr Martin and
Dr O'Reilly. Dr O'Reilly, could I add my congratulations to you
and wish you every success. It sounds quite a challenge you have.
You are most welcome to stay and listen to the evidence that we
are about to have from the representative of Lufthansa.
(Mr Hamer) Thank you, my Lord Chairman, and your
Sub-Committee for hearing us.